Are seller-paid points deductible?As of Jan.
1, 1991, homeowners have been able to deduct points paid by the seller. This
deduction previously was reserved only for points actually paid by the
buyer.

When is the best time to buy?Here are some frequently
cited reasons for buying a house:* You need a tax break. The mortgage
interest deduction can make home ownership very appealing. * You are not
counting on price appreciation in the short term. * You can afford the
monthly payments. * You plan to stay in the house long enough for the
appreciation to cover your transaction costs. The costs of buying and selling a
home include real estate commissions, lender fees and closing costs that can
amount to more than 10 percent of the sales price. * You prefer to be an
owner rather than a renter. * You can handle the maintenance expenses and
headaches. * You are not greatly concerned by dips in home
values.

What home-buying costs are deductible?Any points you
or the seller pay to purchase your home loan are deductible for that year.
Property taxes and interest are deductible every year. But while other
home-buying costs (closing costs in particular) are not immediately
tax-deductible, they can be figured into the adjusted cost basis of your home
when you go to sell (any significant home improvements also can be calculated
into your basis). These fees would include title insurance, loan-application
fee, credit report, appraisal fee, service fee, settlement or closing fees, bank
attorney's fee, attorney's fee, document preparation fee and recording fees.
Points paid when you refinance an existing mortgage must be deducted ratably
over the life of the new loan.

What is the Mortgage Credit Certificate
program?The Mortgage Credit Certificate program allows first-time home
buyers to take advantage of a special federal income tax credit. This program
allows buyers credit in qualifying for the tax advantage they'll receive after
they purchase the home. The amount of the credit is tied to a local formula that
every city with an MCC program must follow. A MCC credit, which can total $2,000
or more, reduces the borrower's federal tax liability by an amount tied to how
much one pays in annual mortgage interest. Both the borrower's income and the
purchase price of the home must fall within established guidelines. To see if
your community has an MCC program, call your local housing or redevelopment
agency. You also may inquire with your real estate broker or the local
association of Realtors.

What are the rules for mortgage credit
certificates?To qualify for a mortgage credit certificate, both your
income and the purchase price of the home must fall within established city
guidelines. These guidelines vary by city but generally only permit people who
earn an average income or slightly higher than average income. A limited number
of cities have authorized the MCC program. Contact your municipal housing
department for more information.

Should I buy a vacation
home?Today a vacation home can be purchased for investment purposes as
well as enjoyment. And yes, there are tax benefits. Some people buy a vacation
home with the idea of turning it into a permanent retirement home down the road,
which puts them ahead on their payments. Another benefit is that the interest
and property taxes are tax deductible, which helps to offset the cost of paying
for a second home. A vacation home also can be depreciated if you live in it
fewer than 14 days a year, or 10 percent of the rented days - whichever is
greater.

How do I save on taxes?Here are some ways to save money on
taxes:* Mortgage interest on loans up to $1 million is completely deductible
for the year in which you pay it to buy, build or improve your principal
residence plus a second home. * Points, or loan origination fees, also are
deductible no matter who pays them, the buyer or the seller. * Most
homeowners, except the wealthy and those living in high-priced markets, no
longer need to worry about capital gains taxes. The exemption has been raised to
$500,000 for married couples and $250,000 for single owners. It can be taken
every two years. Homeowners should always keep all receipts of permanent home
improvements and of mortgage closing costs. If you do have to pay capital gains
taxes, these costs can be added to your adjusted cost basis. Consult your tax
adviser for more information.

Are taxes on second homes deductible?Mortgage interest and
property taxes are deductible on a second home if you itemize. Check with your
accountant or tax adviser for specifics.

Are points
deductible?If you are a buyer, and you or the seller pays points, they
are deductible for the year in which they are paid only. You also can deduct any
points you pay when you refinance your home, but you must do so ratably over the
life of the loan. Consult your tax or financial advisor.

How do you
choose between buying and renting?Home ownership offers tax benefits as
well as the freedom to make decisions about your home. An advantage of renting
is not worrying about maintenance and other financial obligations associated
with owning property. There also are a number of economic considerations. Unlike
renters, home owners who secure a fixed-rate loan can lock in their monthly
housing costs and make prudent investment plans knowing these expenses will not
increase substantially. Home ownership is a highly leveraged investment that can
yield substantial profit on a nominal front-end investment. However, such
returns depend on home-price appreciation.

"For some people, owning a home is a great feeling," writes Mitchell A. Levy
in his book, "Home Ownership: The American Myth," Myth Breakers Press,
Cupertino, Calif.; 1993. "It does, however, have a price. Besides the
maintenance headache, the amount of after-tax money paid to the lender is
usually greater than the amount of money otherwise paid in rent," Levy
concludes. As for evaluating the risk associated with home ownership, David T.
Schumacher and Erik Page Bucy write in their book "The Buy & Hold Real
Estate Strategy," John Wiley & Sons, New York; 1992, that "good property
located in growth areas should be regarded as an investment as opposed to a
speculation or gamble." The authors recommend that prospective buyers spend a
few months investigating a community. Many people make the mistake of buying in
the wrong area. "Just because certain properties are high-priced doesn't
necessarily mean they have some inherent advantage," the authors write. "One
property may cost more than another today, but will it still be worth more down
the line?"

Are there tax credits for first-time home
buyers?Many city and county governments offer Mortgage Credit
Certificate programs, which allow first-time home buyers to take advantage of a
special federal income tax write-off, which makes qualifying for a mortgage loan
easier. Requirements vary from program to program. People wanting to apply
should contact their local housing or community development office. Here is a
list of four general requirements to keep in mind:* Some credit may be
claimed only on your owner- occupied principal residence. *There are maximum
income limits, which vary by locality and family size. * You must be a
first-time home buyer, which means you must not have had any kind of ownership
interest in a principal residence during the past three years. This restriction
may be waived, however, if you are buying property within certain target areas.
* Allocations must be available. A local MCC program may have to decline new
applications when it runs out of funds.

Explain the home mortgage
deduction . .The mortgage interest deduction entitles you to completely
deduct the interest on your home loan for the year in which you paid it.
Mortgage interest is not a dollar-for-dollar tax cut; it reduces taxable income.
You must itemize deductions in order to do this, which means your total
deductions must exceed the IRS's standard deduction. Another point to remember
is that the amount of interest on your loan goes down each year you pay on your
mortgage (all standard home-loan formulas pay off interest first before
significantly paying into principal). That's why paying extra on your principal
every year can help you pay off your loan early.

How are fees and assessments figured in a homeowners
association?Homeowners association fees are considered personal living
expenses and are not tax-deductible. If, however, an association has a special
assessment to make one or more capital improvements, condo owners may be able to
add the expense to their cost basis. Cost basis is a term for the money an owner
spends for permanent improvements throughout their time in the home and is used
to reduce eventual capital gains taxes when the property is sold. For example,
if the association puts a new roof on a building, the expense could be
considered part of a condo owner's cost basis only if they lived directly
underneath it. Overall improvements to common areas, such as the installation of
a swimming pool, need to be considered on a case-by-case basis but most can be
included in the cost basis of any owner who can show their home directly
benefits from the work.

To find out more about how the IRS views condo association fees, look to IRS
Publication 17, "Your Federal Income Tax," which includes a section on condos.
Order a free copy by calling (800) TAX-FORM.

How do I reach the IRS?To reach the Internal Revenue Service, call
(800) TAX-1040.